Onsite Coverage: NCUA Board Approves ‘Troubled Condition’ Rule

ALEXANDRIA, Va. — The NCUA moved forward Thursday during its monthly board meeting with a final rule that would allow the federal regulator to declare a state-regulated, federally insured credit union to be in “troubled condition.’

Previously, that authority was only granted to state regulators. However, staff attorney Steve Widerman said while presenting the final rule to the board that the NCUA discovered a trend in discrepancies between state and federal CAMEL ratings, and felt that to protect the share insurance fund, it needed the new power.

When a credit union’s CAMEL code slides from a 3 to a 4, that triggers the troubled condition designation, which allows regulators greater supervisory powers, including the ability to approve changes in volunteers or executive managers.

The proposed rule, when introduced in July, generated criticism from trade organizations concerned it meant the dual chartering system would take a hit. In particular, NASCUS, which represents state regulators, was most concerned about what the move meant for state regulatory authority.

NASCUS President/CEO Mary Martha Fortney said Thursday she still disagrees the rule was necessary, but said she was pleased to see the NCUA added a provision to the final rule that requires the federal regulator to first make an onsite contact with the concerning credit union before officially overriding a state regulator’s authority and declaring it troubled.

NCUA examiners often conduct remote reviews of state examiner’s reports, and when they do disagree with state examiner’s CAMEL coding, it’s often without first visiting the credit union in person.

Fortney said NASCUS suggested an onsite visit in its comment letter, and she’s pleased the NCUA listened. She stressed that the NCUA’s onsite review would be conducted in consultation with state regulators.

Fortney said she was also pleased that Widerman and NCUA Board Chairman Debbie Matz stressed that the federal regulator did not intend for the rule to challenge state regulator authority.

Widerman said the rule was not “an authority contest” and stressed that the NCUA’s new ability to override state regulator CAMEL codes only applies to the troubled condition status.

Matz said during the meeting she was troubled by the perception the rule would diminish the dual chartering system, and countered that it instead “levels the playing field” between state and federal regulators, granting the NCUA equal authority in protecting the share insurance fund.

Fortney said while she appreciated the sentiment, she will reserve judgment regarding how the rule may threaten state regulator authority until she sees how the rule is implemented.

During the meeting, the NCUA board also approved an increase in the maximum asset threshold for a “small credit union” to $50 million, and increase over the regulator’s proposed rule of $30 million.

Other approved items include an extension of the time a credit union make take to accept the NCUA’s low-income designation offer; a technical rule change that puts federal deposit insurance coverage for Treasury accounts on par with other depository accounts; approval of the NCUA’s 2013 strategic goals; and a briefing on the interagency final rule increasing appraisal requirements for higher-priced and higher-risk mortgage loans.